It is the talk of the town today — rumours of Paypal Holdings Inc (NASDAQ: PYPL) engaging in discussions to acquire social media company Pinterest Inc (NYSE: PINS). The whispers on the grapevine likely have investors drawing comparisons between Square Inc's (NYSE: SQ) deal to acquire 100% of shares in Afterpay Ltd (ASX: APT). Although, Paypal shareholders didn't seem to receive the news positively, with shares falling 4.9% overnight.
The rumoured move comes amid a recent push in acquisitions among fintech companies. In both the United States and Australia, the crossover between payments and e-commerce businesses is becoming a more common phenomenon.
With that being said, let's evaluate the similarities and differences in acquisitions here.
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What's the big deal?
When news originally broke last night, Pinterest shares jumped around 12% higher. This was aligned with the rumoured valuation of US$39 billion that Paypal would potentially pay for the pinboard-style social platform. The speculation was met with a variety of perspectives. Some see the potential deal as a positive move for Paypal, while others were left scratching their heads.
Speaking on the positives, Mizuho senior analyst Dan Dolev said:
The key value proposition for PayPal would be to have an anchor in internet and/or e-commerce and social media, which helps diversify away from standard online checkout. Down the road, PayPal could potentially add more shopping capabilities, and boost its e-commerce presence, potentially competing with other large online retailers like Amazon.
There are similarities between Paypal's rumoured acquisition play and that of rival payment company, Square. For instance, both are financially big deals. When announced in August, Square's all-stock deal valued Afterpay shares at US$29 billion. This equates to approximately a quarter of Square's total market capitalisation. Similarly, if the rumours are correct, the acquisition value of Pinterest would be equivalent to roughly 15% of Paypal's total current value.
Another similarity is the growth profile of Afterpay and Pinterest. In the last financial year, Pinterest benefitted from a shift towards online, resulting in revenue increasing 83.6% year over year. Meanwhile, Afterpay dished out some tantalising revenue growth of its own, growing the top line by 75.4% year over year. As you would suspect, both Pinterest and Afterpay shares did similarly well.
Differences from Square's acquisition of Afterpay shares
When the Square/Afterpay combination was announced, the market was largely excited and pleased. However, opinions on Paypal's grab for Pinterest have been more mixed. This might be due to the overlaps and synergies being less clear for Paypal and Pinterest.
To the benefit of Afterpay shareholders, the company is largely built on financial technology that allows shoppers to pay in installments easily. This payment method has exploded in popularity in recent years, giving rise to new payment giants such as Klarna and Affirm Holdings Inc (NASDAQ: AFRM).
Hence, the connection between a payments processor, such as Square, and a buy now, pay later player is quite apparent. However, the compelling synergies between a social media platform and a payment processor, not as obvious.
For now, the market will need to wait for clarification from Paypal to determine whether the rumours are true. Meanwhile, it appears Afterpay shareholders are unfazed, with shares trading 0.51% higher today.
